Returns are gaining momentum at Graphic Packaging Holding ($GPK)

Return On Capital Employed (ROCE): What Is It?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. Analysts use this formula to calculate it for Graphic Packaging Holding:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.13 = US$1.2b ÷ (US$11b - US$1.7b) (Based on the trailing twelve months to March 2023).

So, Graphic Packaging Holding has a ROCE of 13%. In absolute terms, that's a satisfactory return, but compared to the Packaging industry average of 11% it's much better.

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What Does the ROCE Trend For Graphic Packaging Holding Tell Us?

The data shows that returns on capital have increased substantially over the last five years to 13%. The amount of capital employed has increased too, by 45%. This can indicate that there are plenty of opportunities to invest capital internally and at ever higher rates, a combination that's common among multi-baggers.

My Take On Graphic Packaging Holding's ROCE

To sum it up, Graphic Packaging Holding has proven it can reinvest in the business and generate higher returns on the capital employed, which is terrific. And a remarkable 101% total return over the last five years tells us that investors are expecting more good things to come in the future. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.